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Wolfsberg Group Opposes Mandatory Enhanced Due Diligence for Customers from FATF Grey-Listed Countries

The Wolfsberg Group has voiced opposition to a proposal that would enforce a mandatory higher level of customer due diligence on customers from countries listed on the Financial Action Task Force (FATF) grey list. This proposal comes amid the UK Treasury's recent consultation aimed at enhancing the effectiveness of the country's money laundering regulations.

Wolfsberg Group Opposes Mandatory Enhanced Due Diligence for Customers from FATF Grey-Listed Countries

Among the proposals being considered is the application of Enhanced Due Diligence (EDD) to customers from countries on the FATF grey list. These countries are under 'increased monitoring' but are working with the FATF to rectify strategic deficiencies in their anti-money laundering regimes. Currently, financial institutions (FIs) already apply EDD to customers from countries on the FATF blacklist, which includes nations with "serious strategic deficiencies to counter money laundering."

In its response to the consultation, the Wolfsberg Group, representing many of the world’s largest international banks, expressed agreement with the requirement for FIs “to apply mandatory EDD on customers established in countries on the blacklist.” However, the group contends that “mandatory EDD on all customers established in grey-listed countries, regardless of each customer’s risk profile, is disproportionate.”

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The Wolfsberg Group suggested that instead of mandatory EDD for all customers from grey-list countries, there should be “a requirement to assess and respond to the holistic risk of each customer.”

Currently, there are only three countries on the FATF blacklist: North Korea, Iran, and Myanmar. In contrast, the grey list includes 21 jurisdictions, such as Nigeria, Vietnam, and Turkey.

“It is disproportionate to require EDD on a customer ‘established’ in a grey-listed country when, having considered the nature of the client and all relevant risk factors such as product risk, the FI determines that customer does not pose a high risk,” the Wolfsberg Group stated. They further argued that mandatory EDD could introduce unnecessary friction and delay into customer journeys and disrupt legitimate customers. “An example of this would be retail customers resident in grey-listed countries but whose source of wealth and funds do not originate materially from economic activity in that country,” the group explained.

The Wolfsberg Group also noted that many jurisdictions on the FATF grey list are not considered by the UK’s National Risk Assessment to pose a heightened threat of money laundering.



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